Gamestop (NYSE: GME) shares were initially lower following the company's Q2 earnings results which showed a wider than expected loss. The company is seeing a decline in revenues due to consumers spending less money on goods and increasing spending on services and experiences.
Additionally, the company disclosed a new partnership with FTX for a digital marketplace. It also reported growth in its newest initiatives including an NFT marketplace, although these are not significant enough to offset weakness in its core business.
Overall, Gamestop shares are down 24% YTD. And, they are off by 77% from their all-time high in January 2021 at the peak of meme stock mania. Shares are up by 40% from their mid-May lows and have mostly oscillated between $20 and $50, for the most part, this year.
Inside the Numbers
In Q2, GameStop reported a loss of $0.36 per share which was wider than last year's loss of $0.21 per share. Revenue also declined to $1.14 billion from $1.18 billion last year. Due to the uncertainty around the company, analysts currently are not issuing estimates for its quarterly performance. The company also doesn't provide guidance.
On the conference call, GameStop's new leadership said that it's going through a transition to cut costs and focus on new growth areas as it pivots its business to focus on an increasingly digital world. And, this will require the patience of investors.
However, the company has burned through about half of its $1.8 billion in cash. The bulk of this was raised by selling its stock during the mania. Currently, the company's focus is on becoming profitable, launching proprietary products, and investing in its stores.
In terms of growth initiatives, it launched a beta version of its NFT marketplace. It allows users to connect their digital asset wallets to buy, sell, and trade NFTs and virtual goods. It also announced a collaboration with FTX on new eCommerce and online marketing initiatives in addition to selling FTX gift cards in stores.
GameStop continues to be very overvalued with a market cap of $8 billion and revenues of $1 billion with most retailers. In contrast, Best Buy (Nasdaq: BBY) has a P/S of 0.33. Additionally, GameStop is going to face a near-term challenge with console sales naturally slowing which will make it harder for it to realize the growth expectations embedded in its valuation.